Retail sales fell 0.2 per cent in December - the third-straight monthly drop - to a seasonally adjusted $21,420.9 million but rose 0.1 in the three months to the end of the year, the Australian Bureau of Statistics said today.

The results were softer than forecast, disappointing economists who had expected a 0.3 per cent rise. The November result was revised down from an initial reading of minus 0.1 per cent to minus 0.2 per cent.

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The Australian dollar fell to its lowest level for 2013 following the data release, dropping to $US1.0356 just after noon following the day's high of $US1.0418 in early morning trade.

Eating out less

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Other retailing, which includes pharmaceuticals and cosmetics, led the falls with minus 2.8 per cent, while eating out and takeaway services fell 1.1 per cent. Food retail edged down slightly by 0.1 per cent.

At the same time, clothing, sales in footwear and personal accessories rose by 2.1 per cent, more consumers bought household goods (0.8 per cent) and shopped in department stores (0.8 per cent).

NSW led the fall with a 0.7 per cent drop. Victoria slipped 0.2 per cent, Western Australia fell by 0.3 per cent and the ACT by minus 0.8 per cent. Queensland was unchanged.

‘‘We now have three successive small falls in retail spending. There’s clearly a lack of confidence or an excess of caution on the part of the consumer, and that was also manifested in the December data,’’ BT Financial Group chief economist Chris Caton said.

Dr Caton said consumers were shopping with caution and placing more downward price pressures on retailers as bargain hunters.

"All in all, it’s pretty tough for retailers," he said.

Deutsche Bank retail analysts Michael Simotas and Michael O’Meara said in a research note that the Bureau of Statistics data contradicted the recent feedback from retailers and the industry, which had signallyed ‘‘reasonally solid’’ Christmas trading.

Retail trade still rising in original terms

But Dr Caton said it was important to note that retail trade has been rising in original terms over the past three months.

"Essentially, retail trade has been going up in the last three months, but it has been going up less rapidly than it usually does seasonally," he said.

"I doubt it very much that we are going to get a fourth consecutive fall in the month of January. Some of the weakness may be overstated as there may be a change in the seasonal pattern of spending. So the seasonal factor is pulling the numbers down, but it won’t pull it down forever."

UBS economist George Tharenou added that while retail trade remained weak despite the Reserve Bank's easing of interest rates last year, the implications on overall consumption levels could be more limited.

[T]he 'read-through' is somewhat limited given retail sales are now only approximately 30 per cent of consumption, consumer sentiment recovered to average, car sales jumped to a record high, and the RBA yesterday noted some consumer durables picked-up," Mr Tharenou said in a research note.

'Not much benefit from rate cuts'

National Australia Bank senior economist David de Garis said the figures showed that the retail sector had not benefited much the lower cash rate.

"People haven’t rushed out and spent a whole lot more in shops, whether it’s supermarkets or speciality shops," Mr De Garis said. "We had rate cuts through the middle of last year, in October and in December, so it’s not unreasonable to expect to have seen some response in terms of consumer spending in retailing."

The data came a day after the Reserve Bank kept interest rates on hold at 3 per cent during its first board meeting of the year yesterday, citing an improving global economy and subdued inflation, while keeping the door open for further cuts if needed.

Mr De Garis said it was unlikely the board of the Reserve Bank would have altered their decision even if the softer retail figures were factored in.

"If they sat down yesterday and decided not to cut rates, would they have decided to cut rates today? That would be a bit of a stretch I think. They have a cautious outcome on consumer spending and this would have added to that," he said.

'Lower the threshold for imported goods'

The Australian National Retailers Association (ANRA), which had called for a cut to the cash rate yesterday, again pushed for a lower GST-free threshold on items purchased overseas to reduce Australians shopping on international websites.

"We estimated about 8 per cent of Christmas sales were lost to overseas competitors in the later stages of 2012," ANRA chief executive Margy Osmond said.

"Looking at these numbers, we might have to revise that number up. Retailers have come out fighting with greatly decreased prices and consumers are buying - but margins remain tightly squeezed. With three years of low growth the retail sector is now at tipping point."

Ms Osmond said yesterday following the RBA's decision that retailers were "anticipating a slow start to the year".

"[T]he RBA has chosen to adopt a 'wait and see' approach. Retailers don't need to be so cautious, they know what they will see," she said.

The National Australia Bank's online retail sales index fell in December following a strong November, which analysts said was the peak month for internet shopping ahead of the Christmas season.

In November, retail sales had fallen a surprise 0.1 per cent to a seasonally adjusted $21.5 billion, a result that economists had described as "disappointingly soft".